The Economy

Good, but Not Great

Seventy-two percent of U.S. finance executives say they have a positive outlook on the domestic economy over the next year.
Joseph McCaffertyMarch 1, 2004

Things are looking up in America’s boardrooms , but only minor relief is in sight for job seekers. According to this quarter’s survey of CFO expectations, 72 percent of U.S. finance executives say they have a positive outlook on the domestic economy over the next year. They also expect strong revenue and profit growth for their companies. A solid 75 percent think sales will increase next quarter, and 69 percent expect to improve profitability.

But consider the contrast to hiring plans. While three-quarters expect revenue growth, less than half (46 percent) say they will increase their workforce. Companies learned to operate more efficiently during the downturn; now, this enhanced productivity appears to be driving profitability, but not job growth. The U.S. Labor Department’s data released early last month confirms that companies are adding new workers cautiously, if at all. Only 112,000 new jobs were created in January, too few to keep pace with population growth.

The outlook for the global economy is also improving. Fifty-one percent of U.S. CFOs have a positive view of the global economy, up from 40 percent last quarter. That growing exuberance is shared by their counterparts in Europe, where 57 percent of CFOs are positive, up from 44 percent last quarter. But European finance executives remain guarded about their own future—the confidence level for Europe’s economy held steady at 40 percent. Of the three regions we surveyed, CFOs in Asia are the most confident. Sixty-six percent feel positive about the global economy, compared with 49 percent last quarter. And 87 percent of Asian CFOs are optimistic about their regional economy, up slightly from 84 percent.

CFO Insights on Inflation, Workforce Challenges, and Future Plans 

CFO Insights on Inflation, Workforce Challenges, and Future Plans 

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As with hiring, corporate spending in the United States is beginning to grow again, but modestly. The exception is IT spending: perhaps worried about the challenge of complying with the Sarbanes-Oxley Act, 59 percent plan to spend more on technology. But fewer than half of companies plan to increase spending in such areas as purchasing (41 percent); travel (35 percent); and compensation, including salaries (48 percent), benefits (44 percent), and bonuses (30 percent). About 47 percent say they expect capital spending to rise in the next quarter, and more than half of those say they will increase this area of investment by more than 5 percent.

The top concerns of CFOs reveal the reasons for their cautious optimism. While greater competition is the most commonly mentioned worry—a good sign of an improving economy—companies are also concerned about a lack of capital and weakness in the U.S. economy. Easy access to capital is necessary to sustain ambitious growth plans, of course, and worries about domestic economic growth suggest that many companies will plan conservatively.

This year will likely mark the return of companies to the financial-services market. Twenty percent of finance executives say their company is planning to complete a merger or acquisition within the next 12 months; 12 percent say they will conduct an equity offering, and 13 percent say they plan to issue debt.

All of this is good news, but concerns about the federal deficit, which could push interest rates up, are on the rise. The percentage of respondents who said they were either “very concerned” or “extremely concerned” about the potential economic impact of the federal deficit rose from 33 percent last quarter to 42 percent. And that’s no good at all.

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